Its All About Power Sector

Salient Features of Pooling of Prices of Domestic and Imported Coal

It has been proposed for pooling for the identified capacity of 60,000 MW which has been committed coal supply during the XII Plan period (option -I) with sector wise break up as Central Sector- 17,500 MW, State Setor- 12,675 MW and Private Sector- 29,825 MW for the plants commissioned/ to be commissioned during the period 01.04.2009 to 31.03.2015 and having PPAs with DISCOMs/ State Designated Agencies.

• The proposed scheme would facilitate capacity utilization of new units, reduce logistic constraints along with rationalization of movement of imported coal and thereby reduce the cost of generation of power, recovery of cost of imported coal by charging its price in line with price of CIL's domestic coal of equivalent quality, utilization of power from new plants under merit order dispatch through across the board increase in the price of domestic coal supply of CIL among all the linked consumers.
• In the competitively bid projects, the Developers conclude the PPAs based on the domestic coal LOA granted by CIL. The fuel charge escalation is permitted based on CERC notified escalation rates. The fuel charge based on imported coal may not be a pass through unless the coal supply is through CIL.
• Imported coal to be supplied @ INR 4500 per tonne which is the price of domestic coal of equivalent quality instead of the prevailing price of INR 6000 per tonne. The coal quantity required to be imported for meeting the FSA commitments would be 15 million tonnes and 20 million tonnes in 2013-14 and 2014-15 respectively. In case option I is adopted, it will result to an increase of INR 58 and INR 71 per tonne in 2013-14 and 2014-15 respectively, with the percentage increase of 5 & 6 in the domestic coal prices.
• Imported coal would basically be supplied to the plants which are nearer to coasts, irrespective of whether these have come up before 31.03.2009 or after that. There will be an increase of domestic coal to the new units coming up between 01.04.2009 and 31.03.2015 which are nearer to mines, corresponding to the decrease in coal supply to be made to the pre- 31.03.2009 coastal plants. Keeping in view the decisions conveyed by MoC on 17.02.2012 , supplies would be made in the following manner:-
• New plants nearer to mines- domestic 80%
• New plants nearer to coasts- domestic 65 % + imported 10% (eqvt. to 15% domestic coal)
• Pre-31.03.2009 plants nearer to coasts- domestic 80%+ imported 6.67% (eqvt. to 10% domestic coal). Excess presently delivered to be diverted to (a) above.
• Remaining pre-31.03.2009 plants- domestic 90%
• Impact of price pooling on individual utilities will vary, depending upon proportion of existing and the new plants and their relative distance from associated ports and mines. If the mechanism is applied across the table, new utilities coming up after 31.03.2009 would benefit more.
• The proposed mechanism would be price neutral to CIL as the higher cost of imported coal would be evenly distributed amongst all the old and new power plants using domestic as well as imported coal. It would however lead to savings of INR 1015 Crore and INR 1189 Crore by way of savings on rail freight in 2013-14 and 2014-15 respectively, as the proposed supply matrix would minimize movement of imported coal as well as domestic coal - thereby reducing the overall transportation costs.
• The proposed mechanism would result to additional generation of power to the tune of 30 BU and 40 BU in 2013-14 and 2014-15 respectively.
• The technological limitations of the plants for blending domestic coal with imported coal have to be kept in view while deciding the mechanism. To take care of this problem, it has also been proposed that lower GCV coal may be imported to match the characteristics of domestic coal.
• Pooling of prices of domestic coal and imported coal would be an interim measure for 2013-14 and 2014-15 only. Depending upon its success, it can be extended further.
• For meeting the remaining requirements, power utilities would continue to make their own imports which they are doing now.
• Out of the 60,000 MW capacity for which option-1 has been proposed, where long-term PPAs with DISCOMs is a pre condition for coal supply, private sector is yet to tie up PPAs to the tune of 12,000 MW. As FSA commitments for this quantity are not to be met till the PPAs are in place, either the remaining 48,000 MW capacity may be supplied additional coal beyond FSA capacity or new units of 12,000 MW capacity may be adjusted for signing FSA.
• Pooling of prices may benefit the private sector developers more, but the exact quantum of such benefits cannot be worked out because the power generated by the private sector will ultimately go to the DISCOMs for further supply to the consumers at regulated tariff. The proposed matrix of movement of imported and domestic coal in the proposed scheme would however, result to savings on rail freight, bringing down the overall transportation costs.

Source: Cerebral Business Research Pvt. Ltd.